Immunomodulating proteins and peptides are formed during the hydrolysis of cow's milk proteins. These proteins are potential ingredients in functional foods used for the management of a range of immune related problems, both in infants and adults. However, the mechanism behind these effects is unknown. We hypothesize that the interaction of peptides with Toll-like receptors (TLRs) can induce immune effects, since these receptors are known to sample many dietary molecules in the intestine in order to regulate immune effects. To investigate this, we compared the immune effects and TLR activation and inhibition by whey and casein hydrolysates with different hydrolysis levels. We first measured cytokine production in primary peripheral blood mononuclear cells stimulated with either whey, casein, or their hydrolysates. IL-10 and TNFα were induced by whey hydrolysates (decreasing with increasing hydrolysis level), but not by casein hydrolysates. Next, the activation of TLR 2, 3, 5 and 9 receptors were observed by intact and mildly hydrolysed whey proteins only and not by casein hydrolysates in TLR reporter cell lines. Many casein hydrolysates inhibited TLR signaling (mainly TLR 5 and 9). These results demonstrate that the effects of cow's milk proteins on the immune system are protein type and hydrolysis dependent. TLR signaling is suggested as a possible mechanism for differences in effect. This knowledge contributes to a better understanding of the immune effects of hydrolysates and the design of infant formula, and nutrition in general, with specific immunoregulatory effects.